SS2 Commerce Lesson Note on Turnover

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TOPIC:                                  TURNOVER

CONTENT:   (i)        Meaning of Turnover

                        (ii)       Calculation of Gross profit/Net profit

                        (iii)      Variations in different types of business

Sub-topic:       Meaning of Turnover

Turnover of a business is the net-sales during a particular period e.g. a year. This is the value of total sales of an organization during an accounting period, i.e. sales less return inwards.

Rate/Rapidity of Turnover (ROT)

The rate or rapidity of turnover represents the number of times the value of average stock is sold at any given period. In this respect, the greater the turnover, the greater the gross profit.

Formula

To calculate the rate of turnover, the formula to be used is represented below:

ROT   =  Cost of goods sold

Average Stock

Example: if cost of goods sold is N2, 000 and average sock is N500; what is the rate of turnover?

Solution:

ROT                =                      2000                = 4times

500

Importance of Rate of Turnover

• It helps to determine the size of the gross profit
• It helps the growth of the business
• It acts as a driving force which compels traders to adopt different measures to succeed e.g. while some may reduce prices in order to increase their turnover, others may employ sales forces by allocating more money to advertising to increase patronage.

Factors that affect the Rate of Turnover

1. The demand for the product .e.g. as more products are sold the rate of turnover will also increase, while a decrease in demand will reduce the rate of turnover
2. The amount of capital invested in the business
3. The trader’s profit margin consciousness
4. The nature of the goods e.g. food stuff/perishable good will have high turnover as compared with electronics.
5. Constant availability of goods
6. Advertising and sales promotion: effective advertising and sales promotion increases the demand of goods thereby increases turnover.
7. Credit facilities
8. Reduction in prices of the goods e.g. high price will reduce patronage while low prices will increase patronage.
9. Nearness of business to consumers

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